Housing boom: Should you construct your own house?

Highlights

  • The process of building or buying a house starts with evaluating your own financial situation and how you can finance your house.
  • You may finance a house from savings, self build mortgage, equity in your existing home or a combination of all three.
  • The cost of house depends on the design, material and area of your house, you may look at a breakdown per square meter to determine a potential cost.

To get your ideal house, self-building your house could be a more affordable way than buying a house. But you need to be proactive enough to take risk and plan properly.  It is important to identify, talk and work with experts to know the process to construct your own house. Planning and making decisions confidently is much more important. According to the UK government, around 13,000 houses are self-build.

The process of building or buying a house starts with evaluating your own financial situation and how you can finance your house. The mortgage broker may help you to find the best option available to you according to your financial condition.

If you want to start living in your own house in a shorter period buying a house can be a better option as building your house from scratch is a long-term process with many crucial decisions and planning to make.

The cost of house depends on the design, material, and area of your house

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But you may not get the house you always dreamt of in UK. Either you will get a standard new-build homes or the older ones that may have inadequate energy efficiency, space problem or others. Apart from the cost of house, the additional cost that includes deposit, stamp duty and other fees. Further, while selecting the location also consider transport links, number of rooms and proximity to shops.

The process of building your house from the scratch begins with finding a suitable plot of land, it can offer you the flexibility of having everything your own way and you can employ a contractor or take care of the entire process and design by yourself. For starting the construction, you will need planning permission and will also need to adhere to relevant rules and regulations. Most people take mortgage to build or buy a house, which requires details of the masterplan, proof of planning permission, and cost projections.

Also read: 3 housebuilding stocks to buy amid surging housing market

Cost of Building a House

The cost of building a house is the first thing to know to make your further plans and decide if building your own house is a right option for you. The cost of house depends on the design, material, and area of your house, you may look at a breakdown per square meter to determine a potential cost. On an average, it may cost you somewhere between £1,000 and £3,000/m² to build your own house as per current rate.

If you are thinking to build a house in 2022, you have to consider prices of some fluctuating material. The UK construction industry is suffering from a lack of trade person and shortage of construction material that is driving the cost of building a house.  

Is building a house cheaper than buying?

The average profit on a well-managed self build project is 25%, which make self-build cheaper than buying a house. But building a house from scratch is a time-consuming process and financial input that is unfeasible for many first-time buyers so the idea of custom buy may suit, as they are managed by developers who may provide you information on the financial need and remove some obstacles such as securing planning permission, finding land and getting services to site. If you are building your own house, you can reclaim the 20% on VAT on materials and labour costs.

Also read: Should you buy these 2 FTSE mid-cap housing stocks?

How to finance a house

You may finance a house from savings, self build mortgage, equity in your existing home or a combination of all three.

There are two types of mortgage structure, an advance-type mortgage, and an arrears-type mortgage. In advance mortgage, you will receive money ahead of each stage of building a house, but offers less favorable rates, while in arrears-type mortgage are more common.

However, you need to set a sizeable chunk of up to 30% of your total budget aside to buy a plot and keep 10-15% of your budget aside as contingency fund to cover any unforeseen circumstances or to pay legal fees and stamp duty that is based on the overall build cost and rend to be between 7 and 15%.

Finding a Plot

The first step is to find and buy a plot in locality where you want to build your house. There are various online platforms such as Plotsearch and Potfinder.net, as well as local auctions and word of mouth are also ways to find a plot.

Before buying a plot, you should now if the right to build will be granted by local authorities and if there are any access issues or covenants that may create issues while building the house. The cost of summiting the plan application is currently £462 in England may vary in other parts of the country and you also need to know when did the local planning authority has approved application after eight weeks.

When the contracts on your plot are exchanges you need to have a self-build insurance to protect yourself and contracts as it covers building works, personal accident and public and employers’ liability. 

Also read:  3 real estate stocks you can buy despite the slump in UK home sales

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